Employment Contracts

by Kate Russell

Rights available to employees on fixed-term contracts

Many employers use fixed-term contracts to cover staff absences such as maternity leave or to bring in extra help for a particular task or project.

Fixed-term employees have the right not to be treated less favourably than permanent employees of the same employer doing similar work unless it can be objectively justified. This protection is given by the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002, which came into force on 1 October 2002. Fixed-term employees include employees employed for a fixed period (in other words, with a fixed ending date), employees hired for a period which ends when a specified event does or does not happen (for example, if a grant is not renewed or when a person who has been on maternity leave returns to work), and employees hired to carry out a specific task.

Note

Protection is given to employees employed on a fixed-term contract, but not to workers or self-employed workers. The rules do not apply to people on government or EU-funded training schemes, work experience on higher education courses and agency workers.

Rights under a fixed-term contract

Fixed-term employees have the same statutory rights as permanent employees, including the right to claim unfair dismissal if the contract is not renewed when it ends and there is not a fair reason for the dismissal. The fair reason will generally be redundancy – in which case the employee will be entitled to redundancy rights, including redundancy pay after two years’ continuous employment.

The contractual rights of fixed-term employees must not be less favourable than those of a comparable employee on a permanent contract, unless less favourable treatment is objectively justified. This does not require exact pro rata entitlements; it is sufficient for the fixed-term employee’s contractual rights to be, as a whole, at least as favourable as the permanent employee’s.

Originally, the guidance to the legislation suggested that the terms and conditions don’t have to be exactly the same, but overall the package must not be less favourable than that of a comparable permanent employee. In the light of the recent decision in Hart, see below, employers may have to look at a term-by-term comparison.

Example

In this recent case, an employment tribunal decided that four educational advisers working for the Department for Education and Skills on fixed-term contracts were engaged in broadly similar work to another permanent adviser, that their exclusion from the enhanced redundancy scheme enjoyed by permanent employees was not justified, and that they should be entitled to equal redundancy benefits if their contracts were not renewed on expiry.

H and three others were senior educational advisers working under fixed-term contracts for the Department for Education and Skills. They were engaged in broadly similar work to that of another permanent adviser.

The employer offered generous terms to permanent employees in the event of redundancy, but only statutory compensation to employees engaged on fixed-term contracts. Fearing they were going to be made redundant, they sought a declaration that this difference in treatment breached the 2002 Regulations.

The tribunal upheld the employees’ claims. As a result, when their current contracts expired in 2006, the Department would have to make them substantial redundancy payments on a par with those payable to permanent employees – or offer to retain them under new contracts.

Of particular interest is the finding that the difference in treatment could not be objectively justified. In relation to this, it was significant that the employees (each of whom had worked under a succession of contracts for the department) did, according to the tribunal’s findings, have a reasonable expectation of continued employment beyond the expiry of their current contracts.

On the facts of this case, the difference in treatment could not be objectively justified. The employees each had a reasonable expectation of continued employment beyond the expiry of their current fixed-term contracts.

It may be that in different circumstances an employer may be able to objectively justify a difference in treatment between the application of a severance scheme to its permanent and fixed-term staff – for example, where there is no such expectation of continued employment amongst its fixed-term employees.

Tip

Although the decision was made by an employment tribunal rather than one of the more senior courts, employers would be sensible to review any such policies now, since where an employer engages a number of fixed-term employees and is unable to objectively justify differences, the financial implications could potentially be significant.

The employment rights of fixed-term employees will accrue in exactly the same way as those of a permanent employee on an open-ended contract. The service of employees hired on a series of fixed-term contracts could be treated as continuous employment in certain circumstances. Employers are now limited to using fixed-term contracts for a maximum period of four years unless a further period can be objectively justified. After that, the employee will be deemed to be a permanent member of staff.

Employees on fixed-term contracts can no longer be asked to waive their right to claim unfair dismissal or redundancy payments at the end of the term.

Where a person has been continuously employed on a fixed-term contract or contracts for more than four years, the contract will be converted to a permanent contract at its next renewal – unless the employer can show an objective justification for continued fixed-term employment.

Notification of vacancies

Fixed-term employees have a right to be informed by their employer of available vacancies. This could include displaying an advertisement or notice that fixed-term employees have a reasonable opportunity of reading in the course of their employment (for example, putting the notice on a staff noticeboard, emailing notices to relevant employees or giving reasonable notice in some other way).

Written statement

Fixed-term employees also have the right to ask for a statement of reasons for less favourable treatment and can require employers to provide such a statement within 21 days.

Dismissal

A failure to renew a fixed-term contract is regarded as a dismissal and therefore a fixed-term employee may be able to claim unfair dismissal if he has the necessary length of service. This means it is important to follow a fair procedure in respect of any non-renewal. Even if the ACAS Code does not apply an employer will need to follow a fair procedure in such situations.

The assumption tends to be that the non-renewal of a FC must be an SOSR dismissal (some other substantial reason). Quite often it will be a redundancy. For example, where an employee is taken on to complete a specific project the termination of his contract on completion is likely to be a redundancy. This is because the employer’s need for employees to carry out work of a particular kind has ceased or diminished. If the employee on a FTC has two tears’ service, he will be entitled to a statutory redundancy payment.

One of the most common reasons for taking on an employee on a FTC is maternity cover. Make sure that you set out the reasons for the FTC and clarification that it will end when the post-holder returns to work. Section 106 ERA provides that such a dismissal will be for SOSR and therefore potentially fair if: ‘...

(a) on engaging him the employer informs him in writing that his employment will be terminated on the resumption of work by another employee who is, or will be, absent wholly or partly because of pregnancy or childbirth... and
(b) the employer dismisses him in order to make it possible to give work to the other employee...’.

But you can’t make any assumptions. In one case the employer did not make a clear statement to the employee setting this out.

Example

In this case Mr Durrant had worked for the museum since 1988. After seven months of sickness absence in 2005, he could not return to his original role and for a period of about 18 months, the museum gave a series of temporary contracts. he applied for other roles, but did not secure any alternative position.

In 2007 the employer decided to dismiss Mr Durrant on six months’ notice. He was transferred onto a six-month fixed term contract to provide cover for a permanent employee who was on maternity leave. The letter which the employer sent him at this time stated only that the reason for his six-month fixed term contract was to ‘cover a period of maternity leave’, but it did not contain an unequivocal statement about future termination on the return of his colleague from maternity leave. 

The employee opted to extend her maternity leave and Mr Durrant’s contract was extended. He was eventually dismissed on 18 April 2008. Mr Durrant claimed unfair dismissal and argued that the real reason for his dismissal was redundancy.

The EAT found that section 106 ERA did not apply to Mr Durrant because no clear notice had been given to him at the outset of the fixed term contract as to the circumstances in which it would come to an end. It remitted the question of whether Mr Durrant was redundant back to the employment tribunal to re-consider.

Where an employer needs to make cost savings employers often consider releasing employees on FTCs first. It is seen as an easy solution to just let fixed-term contracts expire without renewal. Indeed it may be argued that as an employer has an obligation to look at ways of avoiding redundancies this is actually a requirement to ensure a fair dismissal of permanent employees. But letting all the fixed-term employees go could be in breach of the regulations which protect fixed-term employees against detriment on the basis of their status. Employers should treat employees on FTCs in the same ways as employees with permanent contracts in order to demonstrate a fair selection.

Dismissal before the fixed term date has been reached

Make sure, if you do have to dismiss an employee on a fixed-term contract before the date has been reached, that you limit your liability. If you don’t, you may have to make full payment to the end of the contract.

Example

If the Company takes the decision to terminate the fixed-term contract before the termination date identified in clause xx above has been reached for any reason, the Employee acknowledges and agrees that the organisation will only be liable for any remuneration and benefits accruing to the effective date of termination. The Employee further acknowledges and agrees that after the effective date of termination the Company is not liable to pay remuneration which would otherwise have been paid if the employee had worked to the due date identified in clause xx of this Statement.

Justification of successive FTCs

Under the EU framework Directive on Fixed term Work Use, successive or long fixed term contracts must be objectively justified so as not to contravene the anti-discrimination legislation aimed at fixed term workers.

The validity of a series of fixed term employment contracts has been considered by the European Court of Justice recently. Between July 1996 and December 2007 Mrs Kücük was employed by Land Nordrhein-Westfalen on 13 successive fixed-term contracts to cover the temporary absences of permanent employees who were absent on maternity leave or sick leave. In January 2008 Mrs Kücük claimed that the German law which permits consecutive fixed-term contracts where there are objective grounds, such as replacing an absent employee, breached the Framework Directive on fixed-term work. 

The matter was referred to the European Court which found that employing her on successive fixed-term contracts to continually cover different absent workers is not in itself a breach of the Directive, even if the cover is required continuously for many years. While a temporary need to replace permanent staff may in principle constitute an objective reason justifying the use of fixed term contracts, it is for the national court to assess whether the renewal of the fixed term contract in question is intended to cover temporary needs and is not in fact being used to meet permanent needs. 

The ECJ went on to note that the fact that the need for replacement staff could be met by hiring another permanent employee does not mean that an employer who uses successive fixed-term contracts instead is in breach of the directive. Member States have discretion in how they achieve the purpose of preventing the abuse of fixed-term work.